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Creating a Household Budget

One of the key elements of a debt settlement program is helping you gain control of your household income. If you expect to be truly debt-free, gaining and maintaining control of your income and how you spend it must be your top priority. And you are not alone in struggling with this problem. According to statistics gathered by the Federal Reserve Board, household debt reached $13.8 trillion in 2007. Grandfather Economic Reports (http://mwhodges.home.att.net/), reports that the household debt ratio, which is a measure of household debt as a share of national income, also reached a record high of 123% in 2007, revealing the fact that household debt is increasing faster than income. These statistics tell us that the average household does not have control of their household income and spending ? they spend more than they make and a significant amount of their disposable income goes toward debt payments.

Budget Basics
Your first step in gaining control of your income is to start learning some budget basics. The first rule of thumb for a financially sound home is simply this:

Household Income must be greater than Household Expenses
Sounds simple, right? You'd be surprised how many homes break this simple rule. But when you do break this rule, then you need to borrow money (often using credit cards) to pay your expenses - a short term strategy that can lead to long term disaster.
Do you really need a household budget? According to a survey conducted by FindLaw.com, 61% of Americans either do not have a household budget or have trouble sticking to it. This is shocking given the ever-increasing debt load that American families carry. Without a household budget you probably won?t know where your money is being spent. And if you don?t know where your money is being spent, your income will never be great enough to keep you out of debt.
You can avoid this difficult position. Just follow the simple steps below to set up a household budget you can live with:

  • Determine your monthly take home pay.
  • Have a clear understanding of all expenses and bills.
  • Track your expenses.
  • Start building up your savings.
  • Don't spend more than you earn.
  • Begin to dream
  • Review and adjust

Determine Your Monthly Take Home Pay
Whether you are just setting up a household budget for yourself or a family budget, you need to know your monthly household income (take home for each working family member). After you have determined this, you know how much money you can spend each month. If you find out that you are spending more than you bring home, then you have some tough decisions to make.
There are basically three choices: you can get another job or work extra hours to add to your income, take some classes or training so you can get a higher paying job, or start spending less than you earn. Each option should be given carefully consideration by the individual or family when setting up a household budget.

Understanding Your Expenses and Bills
Account for all of your bills and the money you spend throughout your daily routine. This can be done by saving copies of all your receipts and paid bills, then recording your total daily expenses in a notepad. One or two times a month take a look at your expenses. Your daily expenses would include anything paid out of pocket except for your regular monthly expenses.
Be sure to include quarterly, semi-annual (each six months), and yearly expenses. Prorate these by dividing the quarterly expense by 3, the semi-annual expense amounts by 6, and the yearly expenses by 12 before adding them to your monthly budget.

Keeping Track of Your Expenses
You can create a simple household budget using your computer and a spreadsheet to monitor your monthly finances. Many household budget forms are available for download from the internet or you can simply create one using Excel or other spreadsheet software. Household budget software applications are also available from your local computer software store that will assist you with keeping track of your expenditures.
You can even create separate categories in your budget that will allow you to micro manage your expenses, categories such as insurance, fuel, auto, food, savings, clothing, children's expenses, etc. You can decide on the categories that fit your needs best, but you should start simple and add more detail as you gain experience with your budget.
Once you have determined what your total monthly take home earnings are you need to divide it up between each of your different categories. The amount included in all the categories must be equal to your take home pay. The secret to making the tracking effective is to enter your expenses on a regular basis and stay within the total amount allotted for each category.
If you keep track of all your expenses effectively, in just a matter of a few months' time you will begin to see areas where you might be able to make some adjustments and save some money. You will likely begin to notice how much money you spend on frivolous things. By eliminating these expenses, you will achieve your financial goals more quickly.

Build up your savings
A large part of any personal budget should be a plan to set aside money into a savings account. Money in a savings account will provide a cushion in the event of an emergency, loss of employment, or other disaster (a contingency fund). Using cash from your savings for these unforeseen circumstances instead of borrowing from a creditor is much less risky (trust me, you will be much nicer to yourself if it takes longer than anticipated to repay it than a creditor will).
Can't save much? The most important thing is that you begin. Over a period of time your savings account will grow and begin to accrue interest. As your employment circumstances improve, you may want to take any increase in earnings and put that amount into your savings. Once your savings grow beyond what you need as a contingency fund, they become an investment tool that can enable you to reach your financial goals even more quickly.

Don't Spend More Than You Earn
It sounds simple enough but this has been an age old problem. Many people have a habit of spending more than they make because credit is so easy to obtain. You must commit to yourself and your family that you will not fall into this trap. It takes determination and strength to live by a family budget and put aside some savings for a rainy day. Planning for the future is not an option if you are serious about your financial stability.

Begin to Dream Again
Many families today have struggled with their finances for so long, that they have forgotten how to dream. One of the keys in sticking to your budget is to recapture those dreams. What have you and your family always wanted to do, but never could ? a vacation, a new home, some special purchase? Write this down and post it wherever you will see it most frequently. Put it in your billfold or purse next to your cash. Each time you are tempted to buy something not in your budget, think about your dreams, then decide if the purchase you are considering is worth it.

Review and Adjust
Finally, review your budget at least once per week and adjust as necessary to make sure you stay on track.  

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